QUESTION 2

Rodrigo is interested to add stock of Brescia Bhd into his portfolio. Brescia is a stock listed in the Bursa Malaysia and its annual average rates of return for the last five years relative to the market index are available for analysis in the Table 1. Meanwhile, the details of his current portfolio position is available in Table 2.

Table 1: Annual average rates of return

Rates of return (%)

Year Brescia Berhad

2015 20

2016 5

2017 10

KLCI Index 15

10

18

6 -12

St. Deviation Beta 15% 0.85

10% 2.5

2018 -15

2019 -10

Table 2: Current portfolio position Value (RM)

Bond of Cagliari 20,000 Bhd

Stocks of Lecce 20,000 Holdings

a) Calculate the beta for Brescia Berhad

Expected return 6%

5%

Correlation coefficient between Cagliari and Lecce is 0.45

Expected correlation coefficient between Brescia and Lecce is -0.55 Expected correlation coefficient between Brescia and Cagliari is 0.20

b) Calculate the portfolio beta if Rodrigo spend RM10,000 to add stock Brescia in his portfolio.

c) Based on Markowitzs portfolio return, would it be wise to add Brescia into the portfolio? (Hint: Compare the portfolio return before and after the Brescia stock is added to the portfolio)

d) Based on Markowitzs portfolio risk calculation, would it be wise to add Brescia into the portfolio? (Hint: Compare the portfolio risk before and after the Brescia stock is added to the portfolio)

e) Based on the followings portfolio performance evaluation technique, and by assuming that risk free return is 3%, comment if it would be better to include Brescia into the portfolio:

i) Sharpes measurement

ii) Treynors measurement

QUESTION 2

Rodrigo is interested to add stock of Brescia Bhd into his portfolio. Brescia is a stock listed in the Bursa Malaysia and its annual average rates of return for the last five years relative to the market index are available for analysis in the Table 1. Meanwhile, the details of his current portfolio position is available in Table 2.

Table 1: Annual average rates of return

Rates of return (%)

Year Brescia Berhad

2015 20

2016 5

2017 10

KLCI Index 15

10

18

6 -12

St. Deviation Beta 15% 0.85

10% 2.5

2018 -15

2019 -10

Table 2: Current portfolio position Value (RM)

Bond of Cagliari 20,000 Bhd

Stocks of Lecce 20,000 Holdings

a) Calculate the beta for Brescia Berhad

Expected return 6%

5%

Correlation coefficient between Cagliari and Lecce is 0.45

Expected correlation coefficient between Brescia and Lecce is -0.55 Expected correlation coefficient between Brescia and Cagliari is 0.20

b) Calculate the portfolio beta if Rodrigo spend RM10,000 to add stock Brescia in his portfolio.

c) Based on Markowitzs portfolio return, would it be wise to add Brescia into the portfolio? (Hint: Compare the portfolio return before and after the Brescia stock is added to the portfolio)

d) Based on Markowitzs portfolio risk calculation, would it be wise to add Brescia into the portfolio? (Hint: Compare the portfolio risk before and after the Brescia stock is added to the portfolio)

e) Based on the followings portfolio performance evaluation technique, and by assuming that risk free return is 3%, comment if it would be better to include Brescia into the portfolio:

i) Sharpes measurement

ii) Treynors measurement

QUESTION 2 Rodrigo is interested to add stock of Brescia Bhd into his portfolio. Brescia is a stock listed in the Bursa Malaysia and its annual average rates of return for the last five years relative to the market index are available for analysis in the Table 1. Meanwhile, the details of his current portfolio position is available in Table 2. Table 1: Annual average rates of return Rates of return (%) Year Brescia Berhad 2015 20 2016 5 2017 10 2018 -15 2019 -10 KLCI Index 15 10 18 6 -12 Table 2: Current portfolio position Value (RM) Expected return St. Deviation Beta Bond of Cagliari 20,000 6% 15% 0.85 Bhd Stocks of Lecce 20,000 5% 10% 2.5 Holdings Correlation coefficient between Cagliari and Lecce is 0.45 Expected correlation coefficient between Brescia and Lecce is -0.55 Expected correlation coefficient between Brescia and Cagliari is 0.20 a) Calculate the beta for Brescia Berhad (15 marks) b) Calculate the portfolio beta if Rodrigo spend RM10,000 to add stock Brescia in his portfolio. (2 marks) c) Based on Markowitz's portfolio return, would it be wise to add Brescia into the portfolio? (Hint: Compare the portfolio return before and after the Brescia stock is added to the portfolio) (5 marks) d) Based on Markowitz's portfolio risk calculation, would it be wise to add Brescia into the portfolio? (Hint: Compare the portfolio risk before and after the Brescia stock is added to the portfolio) (8 marks) c) Based on the followings portfolio performance evaluation technique, and by assuming that risk free return is 3%, comment if it would be better to include Brescia into the portfolio: i) Sharpe's measurement ii) Treynor's measurement (10 marks)